WASHINGTON, Jan. 17 (UPI) -- French aircraft maker Airbus SAS will unveil its new 555-seat A380 jumbo jet in Toulouse, France on Tuesday, only a few days after yet another Airbus request for development funding, which might well restart the long U.S.-E.U. feud over alleged illegal government aid to the aircraft-manufacturing giants.
Airbus overtook U.S. rival Boeing Co. in 2003, when Airbus delivered more planes than Boeing for the first time ever. Airbus did it again this year, delivering 320 planes to Boeing's 285. Airbus describes the new A380 as the world's only twin-deck, four-aisle airliner, the most fuel-efficient in the world, and outfitted with amenities like full-sized beds.
The new aid request is another blow to Chicago-based competitor Boeing, as this round of subsidies if granted would fund Airbus' A350, designed to be a direct competitor to Boeing's upcoming 7E7 Dreamliner.
Airbus has requested about $1.34 billion in new aid from France, Britain, Germany and Spain, countries that funded the development of the A380.
Those onsite for the unveiling will include E.U. leaders French President Jacques Chirac, British Prime Minister Tony Blair, German Chancellor Gerhard Schroeder and Spain's Prime Minister Jose Luis Rodriguez Zapatero, who are expected to be among as many as 4,500 guests that will be attending.
Since June 2004, the United States has been urging European trade officials to end their subsidies to Airbus, which is jointly owned by European Aerospace and Defense Company EADS and BAE Systems of Britain.
The dispute first arose when Airbus outsold Boeing last year by 305 to 281 aircraft. Airbus now controls more than 50 percent of the aircraft market, up from 30 percent when the U.S.-E.U. Agreement on Large Civil Aircraft was signed in 1992. The agreement limits state financial support and limits grants to up to 33 percent for aircraft manufacturers' research and development costs per new aircraft. In October 2004, the United States terminated the 1992 agreement late last year when it filed a complaint with the World Trade Organization about Airbus' subsidies.
Also under the agreement, loans are repayable over a 17-year period, and Airbus will not have to repay the loans if the company does not meet its sales goals.
Boeing complained that Airbus had received as much as $15 billion in aid from European governments without the constraints of raising money at commercial rates and paying it back under traditional terms. But Europeans argued that those are loans on which Airbus has already repaid $6.5 billion.
Furthermore, tensions grew when EADS tried to compete with Boeing who was struggling to gain approval over the summer for a $23 billion deal for aerial-refueling tankers from its long-time customer the U.S. Air Force.
But both the E.U. and Airbus pointed out that Boeing received billions in what amounted to aid from its U.S. defense, space and transportation contracts. As general bilateral talks between the two nations deteriorated, the E.U. continually cautioned the United States from filing a WTO case against Airbus, as some E.U. officials have reported that the case was politically motivated to help President Bush in states where Airbus rival Boeing.
Former E.U. trade commissioner Pascal Lamy warned the U.S. Congress of a possible WTO case against U.S. tax subsidies to Boeing in September 2004. Moreover, Peter Mandelson, now E.U. trade commissioner, had threatened in October of last year that a WTO case would harm both aircraft makers which both enjoy subsidies. Mandelson even claimed that the E.U. would link the subsidy dispute to another transatlantic disagreement over Washington's Foreign Sales Corporation (FSC) scheme that benefits Boeing.
Still U.S. trade officials warned against the FSC claim and soon filed a lawsuit with the WTO, causing an E.U. countersuit charging illegal subsidies to Boeing in October. It was not the first time the United States had taken action regarding Airbus; it had already challenged Airbus subsidies in 1989 and 1991.
"Since its creation thirty-five years ago, some Europeans have justified subsidies to Airbus as necessary to support an 'infant' industry. If that rationalization were ever valid, its time has long passed. Airbus now sells more large civil aircraft than Boeing," said U.S. Trade Representative Robert B. Zoellick in October 2004.
The resulting bickering led to a tit-for-tat in Brussels, Belgium two months later when the E.U. said it would include the FSC in their WTO case about the U.S. export tax subsidy "extraterritorial income exclusion" that was deemed illegal by the WTO in 2002.
Congress, again objecting to the inclusion, repealed the export subsidy first and complied with the WTO achieving some praise from the international community. Worried E.U. officials though, expressed concerned that Boeing would benefit greatly with the two-year phase out period of the policy since the company will get a two-year, $300-million phase-out for the subsidy. The subsidy will be replaced with $137 billion in new corporate tax breaks.
The repeal of the tax break policy may prompt the E.U. to lift trade sanctions on some $4 billion in U.S. imports this month. The sanctions were scheduled to be eliminated on Jan. 1, but it was delayed after several E.U. member states objected to a proposal in December that would allow the European Commission to reimpose sanctions.
"For the first time in this long-standing dispute, the U.S. and the E.U. have agreed that the goal should be to end subsidies," said Zoellick. "We have further agreed to use the definitions and framework of the WTO subsidies rules as the basis for an agreement."
U.S. officials are saying that the framework for the agreement should take about three months, in which time the goal is to the end subsidies. During this time, neither country will be allowed to engage in any other WTO dispute proceedings or cases involving large aircraft development.
However, Airbus's call for aid for the proposed A350, tentatively set for 2010 delivery, might disrupt the impending bilateral agreement talks.
"The objective on which we agreed is to secure a comprehensive agreement to end subsidies -- and I repeat, end," said Richard Mills, spokesman for Zoellick. "The U.S. will not agree to permit new aircraft subsidies that are illegal under World Trade Organization rules, and that certainly covers launch aid."